A lack of Grade A space in the industrial and distribution market in the West Midlands is likely to result in a rise in rents for prime space, according to the latest research from commercial property firm Lambert Smith Hampton (LSH).
Rents are already on the rise in many parts of the UK and the West Midlands is poised to follow suit according to LSH’s annual analysis of the market – National Industrial and Distribution Market 2012.
Grade A space in the region fell by 18 per cent in 2011. Although rents declined slightly over the year – apart from Coventry where they held stable – this trend is unlikely to continue as available Grade A space is snapped up.
Alex Carr, Associate Director in LSH’s Industrial and Logistics team said, “Our findings show that prime rental values are on the increase in strategic locations where there is little or no Grade A space available. This trend will be reflected in the West Midlands, and the market imbalance will cause the market to tip in favour of landlords who own quality space, allowing them to harden their stance on rent and incentives. Countering this, our research shows that rents for secondary space continue to fall.”
Despite the lack of Grade A space, overall availability rose slightly during 2011, the fifth year in succession that the West Midlands has seen availability increase. The trend of increasing second hand availability continued, although the availability rate of the major conurbations is below the regional average.
Take-up activity in the West Midlands was down 10.4 per cent over the year. Despite this slowdown in activity, take up was 25 per cent ahead of the five year average. The main slowdown in activity was the acquisition of large buildings which fell to 3.6 million sq ft in 2011 compared with 4.6 million the previous year.
Major deals in the region were driven particularly by the retail sector, with Amazon taking 707,488 sq ft in Rugeley and Home and Retail Delivery taking 179,220 sq ft in Tamworth. Other significant deals in the region included Plastic Omnium’s letting of 120,735 sq ft at Hams Hall and Kuehne and Nagel’s letting of 237,134 sq ft on Midpoint in Birmingham.
Alex Carr added, “Moving further into 2012 we expect to experience continued demand in the logistics sector. However, the lack of available new space will result in an upward pressure on prime rents. The erosion of available stock is expected to continue to have an impact on overall take up levels in the region, given the lack of available buildings for the largest requirements. As a result, large scale requirements are now likely to be satisfied by design and build options, and we expect to see this activity increase, particularly in core distribution locations such as the M6/M42 and A38 corridors.
“Retail failures and consolidations are likely to release more second hand space onto the market, the quality of which continues to decline. Almost two thirds of available space remains second hand in a market where demand is highest for new space. Occupiers are strictly focussed on modern space which will put increasing pressure on secondary assets.”